Tidy up your contracts! Eight terms in JJ Richards & Sons standard contract are declared void

The Australian Competition and Consumer Commission (ACCC) has obtained a declaration by consent in the Federal Court that eight terms in a contract used by JJ Richards & Sons are unfair and void under the Australian Consumer Law (ACL).

Background

JJ Richards & Sons Pty Ltd is one of the largest privately owned waste management companies in Australia.

The ACCC instituted proceedings in the Federal Court against the company in September 2017 seeking a declaration that certain terms in its small business contracts were unfair and void under ss 23 and 24 of the ACL.

Crown Law’s previous legal update explains the changes to the ACL that extended the protection from unfair contract terms to small business. This action was the first time the ACCC had taken court action to enforce the new provisions.

Declaration about the JJ Richards small business contract

The terms that the ACCC sought to have declared as unfair were:

• an automatic renewal clause that bound customers to subsequent contract terms unless they cancelled the contract 30 days before the end of the term
• a price variation clause that allowed JJ Richards to unilaterally increase the price of the services
• an agreed times clause that removed any liability for JJ Richards where performance of the services was prevented or hindered, even where the customer was not responsible for the prevention or hindrance
• a no credit without notification clause that allowed JJ Richards to charge customers for services it had not rendered for reasons that were beyond the customers’ control
• an exclusivity clause that required customers to obtain all waste management services from JJ Richards
• a credit terms clause that required customers to pay their account within 7 days and allowed JJ Richards to suspend services if payment is not received
• an indemnity clause that created an unlimited indemnity in favour of JJ Richards, even where the loss incurred by JJ Richards was not the fault of the customer
• a termination clause that prevented customers from terminating their contracts if they had payments outstanding.

The ACCC alleged that these terms created a significant imbalance in the parties’ rights and obligations and were not reasonably necessary to protect JJ Richard’s legitimate interests. The terms would also cause detriment to the customer if JJ Richards relied on them.

The Federal Court declared, by consent, that each of these terms were unfair and void. Justice Moshinsky, in discussing the terms, stated that:

"the Impugned Terms tend to exacerbate each other, increasing the overall imbalance between the parties and the risk of detriment to JJR Customers."

His Honour also highlighted that the contract was not transparent because it was drafted in legal language rather than plain English and was not presented in a clear and readily accessible way. For example, the contract used very small font and could be described as a “densely packed page of small print terms and conditions."

What does this mean for government agencies?

Government agencies are bound by the Australian Consumer Law to the extent that they carry on a business.

Many government contracts include clauses similar to those found in the JJ Richards small business contract, in particular, wide reaching termination, variation and indemnity clauses are common. It is crucial that Agencies consider whether the ACL applies to their activities and, if so, identify any standard form consumer or small business contracts. These contracts should be reviewed to ensure they do not contain any unfair terms.

The effect of a term being classified as unfair is that it will be void and the State cannot enforce it. If the clause relates to an indemnity or termination then this can have significant consequences.

In many instances, a clause can be re-drafted to limit its operation but still protect the State’s legitimate interests. Although this may mean reducing the scope of the clause, this is a much better position than being unable to rely on the right at all if it is found to be unfair and void.

If you have any questions about unfair contract terms, please contact Chris Maxwell, A/Assistant Crown Solicitor of our Commercial and Property Team on 3239 6996 or at chris.maxwell@crownlaw.qld.gov.au or Catherine Jackson, A/Senior Principal Lawyer on 3404 3518 or at catherine.jackson@crownlaw.qld.gov.au.

^{The information in this publication is provided for general purposes only. It is not to be relied on as a substitute for legal advice. Crown Law and the Department of Justice and Attorney-General accept no liability for losses caused by reliance on the material in this publication. Formal legal advice should be obtained for particular matters.}